Minimum Wage

Obama surprised people in the State of the Union speech talking about an increase in the minimum wage. It's one of those economic questions I'm never quite sure about. It makes sense that it would raise the standard of living of many employees but it also makes sense that it would increase business costs and would lower employment. To me the most compelling part of the argument is that since the minimum wage isn't tied to inflation, it fell behind and raising it now wouldn't be too much of a burden on businesses.

Up With Chris Hayes did a great segment on this last Saturday, and I'd link it to it if I could find anything on their website. It turns out there's plenty of research to suggest that raising it doesn't lower employment. States have raised their own minimum wages and studies have been done on border towns. Also apparently many small business owners (and Obama supporters) met with Obama and all told him to raise the minimum wage. They site large companies like Walmart, paying minimum wage and letting their employees get benefits from the government instead of paying them, giving them an unfair playing field.

Ross Eisenbrey, vice president, Economic Policy Institute wrote in The Hill Economic research supports raising the minimum wage.

"[Michael] Saltsman’s economics are no better than his legislative research. The old Economics 101 textbook theory he recites – that a higher minimum wage will necessarily reduce employment – was not supported by empirical research. As a 1995 paper in the Journal of Economics Literature put it, “There is a long history of empirical studies attempting to pin down the effects of minimum wages, with limited success.” No one found significant employment losses when President Truman raised the minimum wage by 87% in 1950. When Congress raised the minimum wage by 28% in two steps in 1967, businesses predicted large employment losses and price increases. As the Wall Street Journal reported six months later, “Employment and prices show little effect from $1.40-an-hour guarantee.” Empirical studies even before Card and Krueger’s landmark New Jersey study found no increase in the unemployment rate for teens and young adults from a 10% rise in the minimum wage, while it was clear that higher wages were bringing housewives into the workforce.

Saltsman wants readers to believe that economists have discredited Card and Krueger’s finding that a 19% increase in New Jersey’s minimum wage did not cause job loss. He’s just wrong. Nobel laureate Paul Krugman says the study “has stood up very well to repeated challenges, and new cases confirming its results keep coming in.” And even the most ardent conservative critics could not claim that the New Jersey increase caused statistically significant job loss. Furthermore, a groundbreaking peer-reviewed 2008 paper (that Saltsman chooses to ignore),“Minimum wage effects across state borders: Estimates using contiguous counties,” generalizes the landmark Card and Krueger study to all contiguous county-pairs in the US that straddle a border, finding no adverse employment effects of increases in the minimum wage. "

Here's a comment from The Financial Times, Higher US minimum wage makes sense. " Republican leaders dismissed the idea on the grounds that it would increase unemployment. But there is little evidence this would happen. By contrast, there is plenty to show that a modestly higher minimum wage would reduce poverty and provide a much-needed stimulus to the US economy."